Investment Analysts Research Articles

A review of accounting research in internationalising journals in the South African region

Background: This study analyses the accounting research articles published by South African journals.Aim and setting: A review of accounting research in internationalising journals in the South African region that publish accounting research.Methods: The characteristics of accounting articles were analysed. Five journals were analysed, including the four internationalising journals, Investment Analysts Journal, Meditari Accountancy Research, South African Journal of Business Management, and South African Journal of Economic and Management Sciences and one local journal, South African Journal of Accounting Research (SAJAR).Results: The findings of this study will be of interest to journal editors, authors who would like their research to make an impact and be cited, as well as university research administrators and government higher education policy-makers.Conclusion: The analyses show that many of the highly cited articles have been published recently, boding well for the citation statistics of these journals in future and indicating some success in their efforts to internationalise. The citations of SAJAR lag behind the citations of the internationalising journals. Each journal publishes articles that cover different subject area(s). Within accounting research, accounting education and social and environmental accounting are popular areas of research, whereas taxation; the public sector; and management accounting are not well represented among published articles during 2015–2016 in these five journals. About half of all accounting articles claim their insights will contribute to the accounting literature, with much smaller percentages claiming to contribute to management, policy-making and practice. The most prolific authors and most prominent universities to some extent follow the most popular subject areas, with a social and environmental researcher, Warren Maroun, featuring strongly, and his university, the University of the Witwatersrand, being prominent. Large proportions of authors of 2015–2016 articles are from outside of Africa, speaking to the success of the internationalisation efforts of the internationalising journals, whereas SAJAR mostly publishes articles by African authors.

Twitter as customer’s eWOM: an empirical study on their impact on firm financial performance

PurposeThe purpose of this paper is to investigate the relationship between customer’s electronic word-of-mouth (eWOM) regarding their direct service experiences with firms and these firms’ company value. The authors drew on the marketing-finance interface research approach to demonstrate how interactive social media adopted by individual customer relate to important firms’ financial performances.Design/methodology/approachThe authors used seven American airline companies’ customers’ tweets collected during a 52-week observation period and paired with their corresponding financial data using stock returns and volatilities. Sentiment analysis algorithm and a vector autoregressive (VAR) model quantified the strong association between customer’s eWOM and these firms’ stock returns and volatilities.FindingsThe results show that customer’s eWOM regarding a firm positively associate with the firm’s stock return but negatively associate with its stock volatility; as negative valence of customer’s eWOM increases, the positive effect of eWOM on firm’s stock return decreases; the negative eWOM impacts on the stock market more profoundly compared with when both positive and negative sensitivities are considered; and eWOM’s wear-out effect is much shorter than that of traditional WOM.Originality/valueThe authors address a literature gap where little is known for how customer’s eWOM, that is evaluating firm services, can ultimately impact on firms’ long-term financial performances. The authors discuss how findings from this study offer implications for marketing management as well as strategic insights for practitioners and investment analysts alike.

The role of the gender diversity of audit committees in modelling the quality of management earnings forecasts of initial public offers in Malaysia

PurposePresently, one of the major governance issues faced by management and shareholders of organizations is the gender composition of the boards of directors and audit committees. This study aims to examine the impact of gender diversity in audit committees on the accuracy of management earnings forecasts disclosure in initial public offering (IPO) prospectuses.Design/methodology/approachThe study sample comprises 190 Malaysian companies issuing IPOs that transformed into public companies during the period 2002-2012. Earnings forecasts accuracy (quality) is proxied by absolute forecast error and the study model is developed based on the frameworks of the signalling theory, the agency theory and the resource-dependence theory.FindingsThe study proposes that female directors introduce a set of specific features in the boardroom that serve to improve investor protection and efficient monitoring of management. However, findings reveal an insignificantly positive relationship between gender diversity in audit committees and absolute forecast error, which shows that more female directors in audit committees could translate into more errors and less accuracy in earnings forecasts.Practical implicationsConsidering the recent regulatory developments that encourage the number of women on the board of directors, the findings obtained have significant implications for policymakers. The study findings can also be invaluable to investors, investment analysts, market players and researchers.Originality/valueThe composition of the board of directors and audit committees in terms of gender plays a significant role in the promotion of effective corporate governance practices. This study is one of the pioneering studies that examines the advantages of gender diversity in the board of directors. It is also the first study to extend IPO literature by investigating the role of gender diversity in audit committees in the enhancement of accurate management earnings forecasts included in the IPO prospectuses.

Reversals of impairment charges under IAS 36: evidence from Malaysia

We report that firms reversing impairments under IAS 36 are not more incentivized to engage in earnings management and do not actually engage in more earnings management than a control sample matched on size and industry. We observe that reversals are positively associated with stock market valuation changes but not with future operating performance. Bifurcating our reversal firms into earnings managers and other firms, we report that the impairment reversals of the latter are positively associated with future firm performance and current stock market returns, while those of the former are negatively associated with future operating performance and are unrelated to stock valuation. Thus, while on average impairment reversals are undertaken in an unbiased manner, a minority of firms exploit the latitude provided by this fair value accounting standard to manage earnings upward. This research provides useful information to accounting standard setters pertaining to the adoption of fair value accounting methods. It also assists investment analysts by demonstrating how to detect opportunistic reversals of impairments.

Impact of M&A Announcement on Stock Returns of Acquirer Companies: New Evidence from Indian Stock Market

Mergers and Acquisitions (M&As) are often used as preferred tools of corporate structuring to serve a variety of business objectives and add value for the shareholders. Earlier studies have triggered a number of questions regarding the impact of M&As for the shareholders of acquiring companies. This paper focuses on the M&A among Indian companies and the response of the Indian capital market to such attempts as reflected in the changes in the stock return for different window periods close the M&A announcement. The findings of the present study suggest that there is significant impact of M&A announcement on stock returns for almost half of the sample acquirer companies. The study offers evidence in support of the contention that Indian stock market is not efficient in the semi-strong form with respect to M&A announcement information for acquirer companies and emphasizes that investment analyst cannot ignore the information regarding the M&A deals.

The Impact of Audit Committee Characteristics on CSR Disclosure: An Analysis of Australian Firms

AbstractThis study examines the influence of audit committee (AC) characteristics on voluntary corporate social responsibility (CSR) disclosure in the corporate annual reports of Australian listed firms. It develops hypotheses about the relationship between voluntary CSR disclosure and AC characteristics such as size, frequency of meetings, independence, independent chair, financial expertise and gender diversity. Using multiple regression analysis on data collected from the corporate annual reports of 300 listed firms, the study finds that AC characteristics such as size, frequency of meetings, committee independence and gender diversity have a significant positive influence on the level of CSR disclosure. However, there is no evidence that AC characteristics such as independent chair and members’ financial expertise affect CSR disclosure in Australian firms. Based on an additional analysis, the study also sheds some light on the effect of AC characteristics on environmental disclosure. The findings of this study may be of particular interest to regulators, shareholders, investment analysts and managers in assessing CSR disclosure in annual reports, and in strengthening the monitoring and oversight role of ACs.

Accounting for Contingent Litigation Liabilities: What You Disclose Can Be Used Against You

In order to analyze firm value, investment analysts require information on potential losses from contingent liabilities such as litigation damages. However, revelation of the firm’s private estimates of the probability of loss and possible legal damages can be detrimental to the firm by increasing the costs of settlement. That is, opposing counsel may utilize the firm’s financial disclosures about contingent litigation costs to drive settlement demands. Thus, firms choose to shirk their responsibilities to disclose material litigation liabilities in their financial disclosures. Financial disclosures thereby contain insufficient information about the monetary value of potential litigation damages even for large cases with material litigation risks. This outcome is harmful to investors and management alike. I propose an accounting regulatory disclosure model that uses publicly-available data to provide noisy, but useful estimates of class action securities litigation damages in fraud on the market cases that does not require full disclosure of sensitive private information about the firm’s internal assessment of litigation merits. However, a collective action constraint prevents firms from voluntarily utilizing this information-enhancing solution without regulation to coordinate accounting disclosure requirements. I show that accounting requirements could be revised to induce mutually beneficial information disclosures that would improve the information content in financial statements with regard to contingent litigation liabilities in fraud on the market suits.

MIRR Is a Spurious Criterion and Should Not Be Used in Cost-Benefit Analysis (CBA) and Investment Analysis

This paper evaluates whether MIRR is an appropriate criterion for investment decision and the true annual rate of return on capital. Unlike other published papers, the present analysis introduces three important improvements viz. the investment returns are consistent with NCF (NCF-consistent); the two components of returns on capital investment, i.e. return of capital invested (ROC) and return on invested capital (ROIC), are clearly defined and accounted for; and finally, capital amortization schedule (CAS) is used to verify whether the returns are achievable from the NCF generated and therefore NCF-consistent. The appropriateness of MIRR is evaluated using numerical analysis and the main findings are: a. The estimation of MIRR, manually or in excel, is based on the modified net cash flow (MNCF). The MNCF, derived by mathematically adjusting the actual net cash flow (NCF), distorts the intrinsic value of the cash inflow and its timing. With MNCF, the MIRR is lower than the IRR because MIRR failed to fully utilize the NCF generated as shown by the CAS. MNCF is neither NCF-consistent nor accounting concept-consistent (cash vs accrual concept). b. The problem of reinvestment of intermediate income is a fallacy and therefore the MNCF is a meaningless exercise. For the same NCF, the net benefit stream, MIRR is increasing without any limit with increasing investment rates (IR). The NCF is not adequate to support such an increase in MIRR, as revealed by the CAS. Similarly, when the actual IRR is lower than the IR used, the estimated MIRR is higher than the IRR. Again, the NCF is not sufficient to achieve that higher MIRR than the IRR as confirmed by the CAS. This is one of the serious problems with MIRR that is based on the MNCF, a mere data mining exercise. MIRR is not an accurate estimate but a spurious one. c. Again, the problem of multiple IRR is a data problem associated with non-normal NCF. MIRR does not solve this problem either. With non-normal NCF, the cumulative sum of undiscounted NCF is zero or negative or negligible. In those cases, the NCF data leads to multiple IRR. The non-normal MNCF leads to spurious MIRR estimate (also GIRR and AIRR) that is not supported by the actual NCF as revealed by the CAS. Any rate of return must be NCF-consistent. d. With normal NCF also, the MIRR is spurious because of the false reinvestment assumption and the use of MNCF data. The estimated MIRR, based on assumed reinvestment rate, leads to serious problems as explained above. MIRR (when MIRR < IRR) estimate does not fully utilize the benefit stream and leave a closing balance, as revealed by the CAS. Contrarily, IRR fully utilizes the NCF and therefore IRR is higher than the MIRR (paid-off the ROC and ROIC = IRR). When MIRR is higher than the IRR, the NCF does not support that level of MIRR. e. The results of CAS reveal that MIRR is neither the true return nor the annual rate of return. IRR is also not the annual rate of return but it is the true rate of return on the capital remains invested. Both the MNCF and MIRR are not NCF-consistent but may be mathematically-consistent. When there is no intermediate income, the question of reinvestment does not arise. With that type of NCF, the MNCF and the MIRR are NCF-consistent. f. Generalized IRR (GIRR) and Average IRR (AIRR) criteria are also reviewed. They are not NCF-consistent but mathematically generated returns and are based on wrong assumptions (reinvestment). Based on these results, it is evident that the MIRR is a spurious criterion. Investment analysts and decisions makers may wish to move away from using or reporting MIRR as a criterion so also the authors of all published works and finance and economic texts.

The role of facial appearance on CEO selection after firm misconduct.

[Correction Notice: An Erratum for this article was reported in Vol 102(4) of Journal of Applied Psychology (see record 2017-10684-001). The wrong figure files were used. All versions of this article have been corrected.] We investigate a particular aspect of CEO successor trustworthiness that may be critically important after a firm has engaged in financial misconduct. Specifically, drawing on prior research that suggests that facial appearance is one critical way in which trustworthiness is signaled, we argue that leaders who convey integrity, a component of trustworthiness, will be more likely to be selected as successors after financial restatement. We predict that such appointments garner more positive reactions by external observers such as investment analysts and the media because these CEOs are perceived as having greater integrity. In an archival study of firms that have announced financial restatements, we find support for our predictions. These findings have implications for research on CEO succession, leadership selection, facial appearance, and firm misconduct. (PsycINFO Database Record

The Effect of Ownership Structure on Voluntary Disclosure: Evidence from Saudi Arabia

This paper aims to examine the effect of CG characteristics (ownership structure) on the extent of voluntary disclosure in the financial reports of non-financial listed firms in Saudi Arabia. This paper aims to examine the current level of voluntary disclosure and investigate the influence of variables, such as ownership structure (managerial ownership, family member on the board and government ownership level) and control variables (size, leverage and return on assets), in relation to the level of VDS in non-financial companies listed on the Saudi Stock Exchange. The results of this study suggest that the corporate governance-related variables influence the level of information disclosed, thus confirming the proposed hypotheses. The results showed that the level of VDS was acceptable compared to other studies. With regard to the quality of disclosure, results regarding the CG characteristics showed that all the variables were significantly positively linked to the level of VDS. Moreover, the results regarding the control variables also indicate a significantly positive association with the level of VDS. The results of this paper might be of interest to regulators, investment analysts, and market participants and can aid Saudi authorities in enforcing new policies aimed towards improving the quality of financial reporting.

Overview Of Additional Issue Of Shares And Debt In The Process Of Value Appraisal Of Shares And Planning Of Additional Issue Parameters

The article contains a theoretical analysis of the impact of additional issue of shares on the value of the invested and stock capital. The present analysis encompasses aspects of redistribution of capital between the old and new shareholders, as well as valuation procedures in different situations, both in terms of the volume of additional issue of shares and of payment methods. The income approach is used in the value appraisal. The principal place under the income approach is given to the shareholder value added model (model SVA). This article may be useful in solving a number of practical problems related to the issues of restructuring of the company's capital. Investment analysts will find in this article a tool of benefit-sharing analysis of the capital structure changes between “old” and “new” company's shareholders and will be able to make a calculation of the parameters of the additional issue of shares.

Smith &amp; Wesson: A Big Shot at Security?

An investment analyst at River Capital, LLC, an East Coast hedge fund, is researching Smith & Wesson Holding Corporation (S&W) as a potential investment opportunity. The analyst had become interested in S&W when the company announced the acquisition of Universal Safety Response, Inc. (USR). The USR deal represented a significant investment for S&W and therefore created an opportunity for the company to become either undervalued or overvalued by the market. Excerpt UVA-F-1665 May 25, 2012 SMITH & WESSON: A BIG SHOT AT SECURITY? By July 3, 2009, Ben Mackovak already had devoted countless hours researching Smith & Wesson Holding Corporation (S&W) as a potential investment opportunity. With 2009 sales of more than $ 300 million, S&W was one of the world's leading manufacturers of firearms (see Exhibit 2 and Exhibit 3 for financial statements). Mackovak, an investment analyst at River Capital, LLC, an East Coast hedge fund, had become interested in S&W when the company announced the acquisition of Universal Safety Response, Inc. (USR). The USR deal represented a significant investment for S&W and therefore created an opportunity for the company to become either undervalued or overvalued by the market. The acquisition had been announced on June 18, and S&W's 2009 financial statements had just been released on June 30, so now it was time for Mackovak to make his decision about the company. Was USR a good investment for S&W? Did USR's numbers add up? The stock market had reacted strongly at first to the acquisition announcement, and S&W's stock price jumped 22% ($ 4.93 to $ 6.03) before it dropped to its current price of $ 5.58 (Exhibit 1). The question for Mackovak was whether the market was correctly assessing the value added of USR to S&W. Should Mackovak recommend the investment for River Capital at $ 5.58 per share? Company History . . .

"The role of facial appearance on CEO selection after firm misconduct:" Correction to Gomulya et al. (2016).

Reports an error in "The Role of Facial Appearance on CEO Selection After Firm Misconduct" by David Gomulya, Elaine M. Wong, Margaret E. Ormiston and Warren Boeker (Journal of Applied Psychology, Advanced Online Publication, Dec 19, 2016, np). The wrong figure files were used. All versions of this article have been corrected. (The following abstract of the original article appeared in record 2016-60831-001.) We investigate a particular aspect of CEO successor trustworthiness that may be critically important after a firm has engaged in financial misconduct. Specifically, drawing on prior research that suggests that facial appearance is one critical way in which trustworthiness is signaled, we argue that leaders who convey integrity, a component of trustworthiness, will be more likely to be selected as successors after financial restatement. We predict that such appointments garner more positive reactions by external observers such as investment analysts and the media because these CEOs are perceived as having greater integrity. In an archival study of firms that have announced financial restatements, we find support for our predictions. These findings have implications for research on CEO succession, leadership selection, facial appearance, and firm misconduct. (PsycINFO Database Record

Evaluating financial performance of Indian IT firms: an application of a multi-criteria decision-making technique

This study evaluates the financial performance of nine information technology (IT) firms, listed in National Stock Exchange of India, for a period of 5 years from 2011 to 2015. A multi-criteria decision-making technique (MCDM) - Technique for Order Preference by Similarity to Ideal Solution (TOPSIS) - is used to rank the firms according to their financial performance, by considering 10 frequently used financial ratios as multiple criteria. The results indicate that TCS firm has been the top performer for the 4 years out of a total 5-year period of the analysis, whereas the firm Wipro is found to have the lowest rank during the same period. The lower ranking firms can revise their strategies by analysing the policies of better-performing firms. These results provide useful insights to identify the consistent and stable players in terms of financial performance. These findings could be useful for the managers at different levels, various stakeholders in the firms, investors and investment analysts.

Investing in Sports Stocks: A Case of Sportfolio Management Inc.

Jordan Bourne is the Chief Executive Officer (CEO) of Sportfolio Management Inc. (SMI), a small hedge fund operating out of Boston, Mass. SMI provides prudent and profitable investment management services to clients through active investment in publicly traded companies operating in sport-related business endeavors. By employing both “long” and “short” investment management strategies, Bourne’s objective is to achieve a positive rate of return in the Sportfolio for her valued clients. Assistance from the firm’s Investment Analysts is vital to meet this objective.

Evaluating financial performance of Indian IT firms: an application of a multi-criteria decision-making technique

This study evaluates the financial performance of nine information technology (IT) firms, listed in National Stock Exchange of India, for a period of 5 years from 2011 to 2015. A multi-criteria decision-making technique (MCDM) - Technique for Order Preference by Similarity to Ideal Solution (TOPSIS) - is used to rank the firms according to their financial performance, by considering 10 frequently used financial ratios as multiple criteria. The results indicate that TCS firm has been the top performer for the 4 years out of a total 5-year period of the analysis, whereas the firm Wipro is found to have the lowest rank during the same period. The lower ranking firms can revise their strategies by analysing the policies of better-performing firms. These results provide useful insights to identify the consistent and stable players in terms of financial performance. These findings could be useful for the managers at different levels, various stakeholders in the firms, investors and investment analysts.

Overview of Additional Issue of Shares and Debt in the Process of Value Appraisal of Shares and Planning of Additional Issue Parameters

The article contains a theoretical analysis of the impact of additional issue of shares on the value of the invested and stock capital. The present analysis encompasses aspects of redistribution of capital between the old and new shareholders, as well as valuation procedures in different situations, both in terms of the volume of additional issue of shares and of payment methods. The income approach is used in the value appraisal. The principal place under the income approach is given to the shareholder value added model (model SVA). This article may be useful in solving several practical problems related to the issues of restructuring of the company’s capital. Investment analysts will find in this article a tool of benefit-sharing analysis of the capital structure changes between “old” and “new” company’s shareholders and will be able to make a calculation of the parameters of the additional issue of shares. GEL classification numbers are: D 460, G 120, G 320.

Deutsche Bank and the Road to Basel Iii

This public-sourced case was named the best finance case of 2013 in the 24th annual awards and competition sponsored by The Case Centre. It was designed for and works well in the latter portion of a GEMBA Financial Management and Policies course and in the early stage of a second-year MBA elective Financial Institutions and Markets course. The case is set in mid-2012 as the new co-CEOs of Deutsche Bank are about to speak in an analyst call. Students are the decision makers and have the opportunity to evaluate the various factors affecting a bank's situation in a changing global industry, such as leverage and credit quality, as well as to discuss the implications on Deutsche Bank and the banking sector more broadly of Basel III, the global regulatory reform. The students also have the opportunity to conduct a valuation of the bank. Investors were anxious to know whether the new co-CEOs would discuss the strategy of how Deutsche Bank planned to meet the new regulatory requirements, what effect Basel III would have on the company's profitability, and what lines of business it would focus on going forward in a new banking environment. They also wanted to know more about the benefits of the 2010 majority stake investment in Postbank, a German commercial bank. In class, this discussion also allows for a broader examination of the universal bank model and the role of banks within society. Excerpt UVA-F-1695 Rev. Jan. 28, 2019 Deutsche Bank and the Road to Basel III On July 31, 2012, Deutsche Bank Group (Deutsche Bank) reported its 2nd quarter 2012 financial results. What made this earnings report different from the company's past earnings announcements was that it marked the first time after former CEO Joseph Ackermann stepped down that co-CEOs Jurgen Fitschen and Anshu Jain would publicly address investment analysts and shareholders on Deutsche Bank's quarterly conference call since assuming their roles on June 1, 2012. The biggest question on the minds of analysts and investors was whether or not Deutsche Bank would be able to meet the capital requirements imposed under a revised global banking regulatory framework—Basel III. In response to the global financial crisis, the Basel Committee on Bank Supervision, consisting of senior representatives of the G20 central banks, began formulating the new framework in an effort to raise “the quality, consistency, and transparency of the capital base” of financial institutions worldwide. Although approved in December 2010, the new requirements would not take effect immediately. Rather, the various requirements would be phased in gradually, beginning in 2013 and becoming fully implemented by January 1, 2019. For banks, Basel III meant clearing a series of regulatory hurdles starting in 2013 that would fundamentally change the banking industry landscape. Investors were concerned that Deutsche Bank would need to raise fresh equity capital to meet the requirements, thereby diluting the equity value of existing shares. In addition, profitability in the banking sector had been in steady decline since the global financial crisis of 2008, and investors worried that stricter capital requirements would further reduce profitability at Deutsche Bank going forward. And the sovereign debt issues plaguing many European Union countries added more insecurity. . . .

Overview of Additional Issue of Shares and Debt in the Process of Value Appraisal of Shares and Planning of Additional Issue Parameters

&lt;em&gt;The article contains a theoretical analysis of the impact of additional issue of shares on the value of the invested and stock capital. The present analysis encompasses aspects of redistribution of capital between the old and new shareholders, as well as valuation procedures in different situations, both in terms of the volume of additional issue of shares and of payment methods. The income approach is used in the value appraisal. The principal place under the income approach is given to the shareholder value added model (model SVA). This article may be useful in solving a number of practical problems related to the issues of restructuring of the company's capital. Investment analysts will find in this article a tool of benefit-sharing analysis of the capital structure changes between “old” and “new” company’s shareholders and will be able to make a calculation of the parameters of the additional issue of shares.&lt;/em&gt;

Do stock prices undervalue investments in advertising?

Under the efficient market hypothesis, the stock price incorporates the full value of a firm’s advertising. If so, advertising spending should not be associated with future abnormal stock returns. Nevertheless, from 1995 to 2015, advertising spending often leads to abnormal stock returns the following year. The strongest results surface for consumer goods and services where advertising used to build brand equity can carryover from one year to the next. No significant differences arise for healthcare, industrial goods, or retailer advertising. Healthcare and industrial goods advertising is often modest. Retailer advertising that builds traffic should have little if any carryover into the following year. These results may help marketing managers defend an advertising budget whose benefits carryover into the following year, but hurt current profits. Having more investment analysts on Wall Street with a marketing background should help reduce this overly conservative “wait and see” discount for carryover advertising.